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REV: MARCH 6, 2006
JAN W. RIVKIN
DOROTHY LEONARD
GARY HAMEL
Change at Whirlpool Corporation (A)
In mid-1998, the Executive Committee of Whirlpool Corporation unveiled a new direction for the
company, a strategy dubbed “Brand-Focused Value Creation.” The logic of the strategy was
straightforward: shifting the company’s attention more fully toward its customers would enable
Whirlpool to deliver better solutions, making consumer more loyal to Whirlpool’s brands and
benefiting the firm’s shareholders. Dave Whitwam, Whirlpool’s Chairman and CEO, reflected on the
organizational challenge:
This is my third time trying with brands. I tried brands in 1987, when I became Chairman: I
broke the company up into branded organizations. The company resisted. In the early 1990s,
we tried the “Dominant Consumer Franchise” initiative. That didn’t work effectively either.
So this is the third attempt, and probably my last. You see, this is a manufacturing- and
engineering-oriented organization. The power base has historically been on the operations
side, not the marketing side. The prior initiatives enhanced our brand focus but didn’t prove
to be entirely successful. The customer did have a difficult time penetrating the organization.1
Earlier efforts to focus on customers and brands had had little effect, but along other dimensions,
Whirlpool had changed dramatically during Whitwam’s eleven years at the helm. Sweeping efforts
to globalize the company and to improve its costs and quality levels had made Whirlpool the world’s
largest appliance maker. No company produced more washers, dryers, refrigerators, cooking ranges,
and dishwashers. Yet Whitwam feared that global scale, competitive costs, and improved quality
were not enough to make Whirlpool a success. More fundamental change was necessary:
As we look at the future, we realize that this is going to be a very different, very tough
industry. Many people in the company think, “The only way you drive change is out of
crisis.” There is no crisis at this time. There is no burning platform. But I’ve always felt you
can drive change if you paint a picture of a better tomorrow.2
The U.S. Major Home Appliance Industry
Major home appliances included so-called “white goods” – washers, dryers, refrigerators,
freezers, cooking ranges, and dishwashers – as well as air conditioners, disposal systems, and
microwave ovens. In 1998, U.S. consumers bought about 36 million appliances and paid roughly $13
billion dollars for them.3 See Exhibit 1 for data on purchases of white goods over several decades.
________________________________________________________________________________________________________________
Professor Jan W. Rivkin, Professor Dorothy Leonard, and Gary Hamel, Visiting Professor at the London Business School, prepared this case with
the assistance of Research Associate John Lafkas. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve
as endorsements, sources of primary data, or illustrations of effective or ineffective management.
Copyright © 2005 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,
photocopying, recording, or otherwise—without the permission of Harvard Business School.
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Change at Whirlpool Corporation (A)
Historical Development of the Industry
The home appliance industry emerged in the early twentieth century, with electric washing
machines, household refrigerators, and temperature-controlled stoves introduced between 1906 and
1915.4 The first appliances were expensive and dangerous. Early refrigerators, for instance, used
toxic chemicals that could explode if they leaked.5 Market innovation slowed during the Great
Depression and World War II, but increased dramatically in the late 1940s and early 1950s.
Innovations in plastics and porcelain finishes made home appliances cheaper, more reliable, and
more attractive. Soon after World War II, Whirlpool offered the first top-loading automatic washer,
and Frigidaire introduced a refrigerator / freezer combination with an entirely separate compartment
for the refrigerator. Maytag launched the first washer with an automatic agitator in 1949 and the first
electric clothes dryer in 1953. The first residential automatic dishwasher was sold in 1954. Raytheon
introduced a microwave cooking oven in 1949. It sold for over $2,000 and was the size of a
refrigerator.6
After the 1950s, innovation in white goods slowed dramatically and product improvements
became more incremental. For instance, white-goods manufacturers made refrigerators more
spacious, more energy efficient, and far more reliable. They added automatic defrosting, individual
temperature controls, automatic icemakers, water filtration systems, and “crisper” containers for
produce.7 Prompted by energy price spikes in the 1970s and new regulations in the 1980s and 1990s,
white-goods firms made appliances more energy efficient and environmentally friendly. For
instance, refrigerator makers found substitutes for chlorofluorocarbon-based coolants, which
depleted the ozone layer.8
Household purchases of white goods surged during the two decades after World War II as
disposable income soared and more women worked outside the home. Appliance makers found at
the time that they could pass along annual price increases of 2-3% even without updating their
products. However, growth began to slow in the 1960s and continued at a modest pace through the
1970s and 1980s. During the 1990s, the unit sales of white goods in the U.S. increased by an average
of 2-4% annually, and prices of unimproved products declined 2-3% per year.9
Consumers
In the late 1990s, the market for white goods was driven by new residential construction (25% of
total demand) and replacements (75% of total demand).10 Residential construction firms were
generally responsible for outfitting new apartments and homes with some or all appliances,
especially refrigerators and ranges. Because they received a fixed amount of money per house or unit
built, these firms wished to buy less expensive products. To homebuyers and renters, name-brand
appliances signaled a residence’s quality, so contractors tended to purchase cheaper lines of wellResidential construction firms generally bought appliances directly from
known brands.11
manufacturers or from contract distributors employed by the manufacturers. Construction firms
preferred to work with manufacturers that carried a full line of white goods to ensure stylistic
consistency among these appliances.12 Working with a single manufacturer also gave the contractor
some leverage in regard to pricing and terms of delivery.13
Replacement demand arose when an appliance wore out, when a customer decided to “trade up”
by getting a more expensive appliance with additional features, or when a customer bought new
appliances as part of a remodeling project. Most appliances worked for a decade or more, and the
functioning lifespan of the typical major appliance had risen in recent years. Despite manufacturers’
efforts to encourage early trade-ins, households rarely replaced appliances that worked. Industry
insiders quipped that “Old refrigerators never die. They just move to the basement.”
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When replacing major appliances, customers sought opinions from their friends and family, read
informational magazines like Consumer Reports, and shopped at different stores. Sales personnel at
retail stores helped consumers compare across models. More recently, customers had started going
online to look for product information and to compare prices. Industry insiders held a wide range of
opinions about how aware consumers were of appliance brands. Executives at one major appliance
manufacturer believed that one-third of appliance shoppers had a particular brand in mind by the
time they entered a store, and only 10% of shoppers had such a strong brand preference that they
would not consider switching. Executives at another maker reported that 86% of appliance shoppers
had a brand in mind, and roughly half of those shoppers went on to buy the brand they had in
mind.14 Several factors influenced customers’ purchase decisions, including product features, price,
reliability, durability, warranty, advertising, and promotion.15 In general, customers paid more
attention to the up-front price of an appliance than they did to after-purchase expenses like energy
costs, and they had been reluctant to pay more than a modest premium for money-saving features
such as increased energy efficiency. Industry insiders debated how consumers weighed rational and
emotional factors in choosing among brands and products. Conventional wisdom was summed up
in one consumer’s remark: “Hey, I don’t want to hug my washer.”16
Consumers of major appliances were a diverse lot. Home owners with limited space increasingly
preferred smaller appliances. A related trend in smaller residences was for washers and dryers to be
located in kitchens and bedrooms rather than laundry rooms. Because of their locations, these
products had to be quieter than their traditional counterparts were and had to blend in with the
surrounding décor.17 Other consumers subscribed to the maxim that “more is better,” especially in
the kitchen. Companies like Sub-Zero, Gaggenau, Viking, and Thermador had rapidly increased
their market shares in the premium segments for refrigerators and ovens, some of which cost $3,000$6,000. The appetite for high-end appliances also extended to the laundry room. Maytag’s Neptune
washer, a high capacity, front-loading machine that was uniquely designed and energy efficient, had
sold very well even though its price was three times higher than the price of low-end washers.18
Distribution Channels
Distribution channels for major appliances had changed markedly in the decades leading up to
the late 1990s. In the 1960s, specialty appliance stores had sold over 50% of all appliances in the
U.S..19 Mass merchants such as Sears, Montgomery Ward, and J.C. Penney had accounted for most of
the remainder of the market.
By the late 1990s, independent appliance stores and small or midsize dealers were a diminishing
channel, with 31% of the market. Once-prominent regional chains such as American Appliance,
Highland, Lechmeres, and Polk Brothers had gone out of business or were on the brink of failure.
Mass merchants sold 47% of white goods, but many were struggling. Montgomery Ward was under
bankruptcy protection, Sears was in the midst of a turnaround effort, and J.C. Penney had stopped
selling white goods. Electronics stores like Circuit City and Best Buy, home improvement stores such
as Home Depot and Lowe’s, and warehouse clubs like Costco accounted for 12%, 6%, and 1%,
respectively, of the white-goods market.
A single mass merchant, Sears, served 35% of the market in 1998 and had long been the nation’s
largest retailer of white goods. For years, Sears had sold only its own private-label brand of
appliances, manufactured by companies such as Whirlpool and General Electric and affixed with the
Kenmore brand. In the late 1980s, however, Sears had begun to carry appliances with others’ brand
names in addition to Kenmore. In the mid-1990s, it had initiated a sourcing initiative under which it
solicited bids from manufacturers for different products in its Kenmore line. It gave the winning firm
a three-year contract for that product category, after which it would bid out the contract again.20
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Change at Whirlpool Corporation (A)
Exhibit 2 shows a picture of a typical retail display of white goods in the late 1990s, a photograph
that Whirlpool’s Whitwam often shared when discussing industry conditions. Retail displays could
be extensive: a Sears in Atlanta’s Northlake Mall, for instance, offered 110 models of refrigerators, 87
ranges, 45 dishwashers, 51 washers, and 42 dryers.21 On average, retailers earned a gross margin of
25-30% on appliances, but this figure varied widely, with mass merchants seeing margins as high as
40% and warehouse clubs earning as little as 10%. For most retailers, appliances yielded somewhat
higher gross margins than the average product line.22
Stores varied in the approaches they used to sell appliances. Sears, for instance, offered
appliances at ”good,” “better,” and “best” price points and trained and compensated its sales
personnel to convince customers to purchase higher-priced items. In contrast, Best Buy carried a
wide range of products from several manufacturers and trained its non-commissioned sales force less
than Sears did. Retailers were often induced by manufacturers’ sales promotions and incentives to
steer customers towards particular brands. For instance, some white-goods firms offered greater
margins on their products to retailers. Manufacturers might also offer salespeople sales promotion
incentives, or “spiffs” – a bonus of $25 to $50 for selling a promoted product.23 Manufacturers
considered it critical to move customers “the last three feet” toward their products, and salespeople
were important guides to those feet. Career-long appliance salespeople – commonplace in an earlier
generation – were rare by the late 1990s. More transient retail workers, with less experience of
products and brands, had taken their place. Only a handful of retailers, including Sears, continued to
employ salespeople with long experience.
Manufacturing
Exhibit 3 shows the cost structure of a typical white-goods manufacturer. White-goods makers
produced home appliances in large fabrication and assembly operations. A full-scale factory, capable
of producing more than one million units per year, might cost several hundred million dollars. In
practice, very few new plants had been built in the U.S. in recent years. Instead, manufacturers
expanded capacity by improving productivity at existing facilities. The minimum efficient scale of
production varied according to the appliance, but economies of scale could be considerable.
Economies of scale and scope applied not only to manufacturing, but also to appliance
manufacturers’ other activities. For instance, firms could save on distribution expenses by shipping
full carloads of goods. Also, large appliance firms enjoyed some economies in their marketing and
selling expenses if many product lines shared a brand name. Consumers, however, generally did not
associate a brand name with the name of the parent company if the two weren’t the same. For
instance, few consumers realized that Magic Chef was a subsidiary of Maytag.
Appliance factories resembled auto plants, with metal stamping facilities, paint shops, and
assembly lines. Like auto companies, appliance makers had focused intensely since the 1980s on
improving the quality and reliability of their products and on controlling their costs by reducing
waste, boosting productivity, and using more economical material. Industry observers felt that the
quality and cost efforts had been widely successful, and some believed that the efforts had deterred
entry by Japanese competitors, which had appeared likely to enter the United States during the 1980s
but never did.
Most raw materials for white goods were standard inputs. A typical refrigerator, for instance,
required 60 pounds of steel, 35 pounds of plastic, 8 pounds of aluminum, hundreds of square feet of
insulation, 750 feet of wire, and more than 100 fasteners.24 Other inputs, like compressors and motors,
were more specialized. Historically, the major manufacturers had produced specialized inputs
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themselves. Increasingly, they purchased these inputs from a handful of close outside suppliers with
whom they had long-term relationships.
With the exception of refrigerators, which required the installation of lots of wiring and insulation,
labor constituted a relatively small part of appliances’ production costs.25 Technological and process
improvements had enabled white-goods makers to produce more appliances per worker. Since
demand for white goods had grown only slowly, firms had slowly trimmed their production
payrolls. Many, but not all, plants were unionized. Even at unionized plants, labor representatives
had been flexible in the contracts they reached with management.26
The easiest way a white-goods firm could raise prices was by adding new features to its products.
An appliance with a dramatically new feature, like the self-cleaning oven, could command a price
premium before competitors incorporated the new feature in their own offerings.
Competitors typically matched the successful features of each others’ products quickly, often within a
year or two, with patents providing little protection.
Competitors
A trend toward consolidation, present in the appliance industry as early as the 1940s, picked up
steam during the 1980s and 1990s. During this period, competitors purchased one another to fill out
product lines. For instance, Maytag – long a laundry specialist – bought oven makers Jenn-Air and
Magic Chef in 1982 and 1986, respectively. Whirlpool bought KitchenAid in 1986 to strengthen its
position in the premium segment of appliances. Other acquisitions crossed national borders. For
instance, Sweden-based Electrolux bought White Consolidated, then the third-largest U.S. appliance
firm, in 1987.
By 1998, four companies manufactured 93% of U.S. major home appliances. Exhibit 4 shows
market shares of the Big Four by product line, and Exhibit 5 compares financial results.
General Electric’s Appliance Division served 28% of the U.S. market, second only to Whirlpool.
The division’s corporate parent was one of the most prominent, disciplined, and profitable
companies in the world, with more than $100 billion in revenue and $9 billion in net income in 1998.
Appliances represented less than 6% of GE’s total sales and a similar portion of its profits, but they
were one of GE’s most visible symbols because consumers used them daily.27 The Appliance Division
maintained relationships with several other GE businesses, including consumer finance and
construction leasing.
GE’s Appliance Division was especially strong in the contractor market, where it held an
estimated 45% share, and in kitchen appliances.28 Its supply chain, widely regarded as the best in the
industry, was highly decentralized, with warehouses in easy reach of contractors throughout the
country.29 Its salespeople were linked to the supply chain and to each other by sophisticated mobile
computing and communications tools, and each salesperson received 120 hours of training per year.
Consumer could get answers about their GE appliances by phoning the GE Answer Center or by
checking its relatively advanced Internet site. Secure areas of the site allowed GE’s 32,000 builder
customers and 6,000 dealers to place orders, check delivery schedules, and review their GE buying
history. GE appliance executives hoped that, in the near future, consumers in a retail store would be
able to review GE’s entire product range online and order products that were not on the shop floor.
GE would then ship the product to the retailer within a day or two.30
GE offered low-end appliances under its Hotpoint and RCA brands, mid-range appliances under
the GE brand, and high-end refrigerators and ranges under its Monogram brand. The company
pursued contracts to make Kenmore appliances for Sears, and it courted discount retailers such as
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Wal-Mart. Recently, it had developed the GE Profile brand to cover the mid- to upper-end of the
product spectrum. Profile was also intended to strengthen GE in laundry appliances, an area of
weakness. Profile washers, with a suspension system designed by GE Aircraft Engines and a basket
developed by GE Plastics, enabled GE to challenge Maytag for the #2 spot in clothes washers and
dryers.31
Maytag, with a 17% share of the market, relied on home appliances for 86% of its total corporate
revenue. For many decades, the company focused on clothes washers and dryers, touting the
reliability of its products. In 1967, a commercial featuring Ol’ Lonely – a Maytag repairman driven to
distraction by the failure of Maytag products to fail – launched one of the longest-running series of
advertisements in television history. Industry rivals marveled for years at the price premium that
Maytag could command – “the $100 bill on the washer” – even when objective tests showed that
Maytag products were no more reliable than other products.
Maytag’s premium, however, faded significantly during the 1990s. Outsiders hired from the
packaged-goods industry made a series of big investments in product innovations, which rivals
rapidly leapfrogged. Acquisitions of Jenn-Air and Magic Chef strengthened Maytag in kitchen
appliances, but industry insiders felt that the brands were poorly distinguished and developed.
Maytag’s Hoover vacuum division, acquired in 1989, appeared to be a drag on earnings, as were
certain international operations. Layers of management and production inefficiencies remained in
place even as Maytag’s laundry premiums fell, and retailers – long alienated by Maytag’s tendency to
market directly to the consumer and not to cater to the channel – did little to push the brand. The
1997 launch of the innovative and successful Neptune washer and dryer boosted Maytag. By 1998,
competitors had begun to introduce similar products.
Electrolux AB, based in Sweden, served 12% of the U.S. market. Worldwide, Electrolux was the
second largest appliance maker, with $14.5 billion in sales – 55% from consumer white goods, 17%
from other household appliances such as vacuum cleaners, and 28% from professional appliances
and outdoor products. In the 1980s, Electrolux had catalyzed industry globalization by purchasing
White Consolidated, Tappan, and – eventually – 300 other companies around the globe. It had
difficulty integrating these acquisitions, however, and began to restructure itself in 1997. In 1998,
Electrolux sold off several lines of business and reduced its number of operating units from 561 to
469. It was also attempting in 1998 to cut costs dramatically by developing common technological
platforms that could be used for several products in the same category, by making its supply chain
more efficient, and by reducing overhead expenses.
Electrolux was best known among consumers for its Frigidaire refrigerators. Frigidaires were sold
to retailers at aggressively low prices and only in large volume – carload shipments only. On product
innovations, Electrolux tended to be a “fast follower”: it let other companies pioneer innovations,
then rapidly introduced its own versions at low price points. The company also competed vigorously
to make Kenmore appliances for Sears and earned roughly 25% of Sears’ contracts.
Other companies survived on remaining scraps of the market. Korea’s LG, for instance, had
entered the refrigerator market with small and low-end products, but by the late 1990s, offered
refrigerators at the high end of the spectrum. Many industry observers expected that Asia would
eventually field a major contender in the appliance market.
Whirlpool Corporation
Whirlpool’s roots lay in the Upton Machine Company. Headquartered in rural Michigan, Upton
offered its first electric, motor-driven wringer washer in 1911. According to an early account of the
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washer, “all the mechanism was exposed, all of it could get wet, and often did. The possibility of
electrocution went practically hand in hand with the down payment.”32 Upton began to expand
rapidly in 1916 when Sears, Roebuck agreed to offer Upton’s washers in its catalogue under the trade
name Allen. The initial order was for 25 machines per month, with two models selling for $54.75 and
$95.00.33 As Sears grew, so did Upton. In 1929, Upton merged with the 1900 Washer Company. The
combined firm became the Nineteen Hundred Corporation, with Sears and Upton owning most of
the stock. In 1950, the Nineteen Hundred Corporation renamed itself after one of its products, the
Whirlpool washer.
From the 1950s through the 1970s, the fortunes of Whirlpool rose with those of Sears, which long
accounted for more than 50% of Whirlpool’s business. Most of these revenues were attributable to
washers and dryers, for which Whirlpool was then the exclusive supplier to Sears. In the 1950s, the
company merged with the Seeger refrigerator company and bought RCA’s air conditioner and
cooking range business.34 These moves helped Whirlpool round out its white-goods offerings and
enabled it to compete better with General Electric, which had expanded aggressively into appliances
and had built substantial excess capacity in anticipation of future demand.35 Starting in the 1950s,
Whirlpool also worked to expand beyond its Sears partnership and to establish its own set of brand
names. Its brand-building efforts were boosted in 1986, when it acquired KitchenAid, an upscale
producer of dishwashers, ranges, and small appliances like mixers. By the mid-1980s, Whirlpool was
the second-largest white-goods maker in the U.S. – the market leader in refrigerators, washers, and
dryers, and fourth in ranges behind GE, White, and Magic Chef.36
David Whitwam became Whirlpool’s CEO in 1987. Whitwam had joined Whirlpool in 1968,
straight out of college, and had risen to become vice president of sales in 1983 and chief marketing
officer in 1985.37 When he took the position of CEO in 1987, Whirlpool booked 96% of its $4 billion in
revenue in the United States and Canada.
Globalization. Domestic competition and Electrolux’s moves into the U.S., however, convinced
Whitwam that Whirlpool had to achieve global reach:
Even though we had dramatically lowered costs and improved product quality, our profit
margins in North America had been declining because everyone in the industry was pursuing
the same course and the local market was mature. The four main players – Whirlpool, General
Electric, Maytag, and White Consolidated, which had been acquired by Electrolux – were
beating one another up every day…. Our eight months of analysis turned up a great deal of
evidence that, over time, our industry would become global, whether we chose to become
global or not. With that said, we had three choices. We could ignore the inevitable – a decision
that would have condemned Whirlpool to a slow death. We could wait for globalization to
begin and then try to react…. Or we could control our own destiny and try to shape the very
nature of globalization in our industry.38
Whirlpool’s Executive Committee chose the third path and, in August 1988, sought Board approval
for a new strategy. Guided by the vision “Reaching Worldwide to Bring Excellence Home,” the
strategy aimed to establish a strong presence for Whirlpool in all major markets in the world.
Subsequently, Whirlpool purchased a majority stake in Philips’ European appliance business in
1989 and bought the rest of the business in 1991 – for a total of roughly $1 billion. The acquisition
made Whirlpool the largest white-goods maker in the U.S. and the second largest in the world, with a
sizable presence in Europe and over $6 billion in annual revenue. Subsequent moves in Europe,
expansion of a long-standing alliance in Brazil, and joint ventures in Asia gave Whirlpool a broad
international footprint: by 1998, the company operated 44 significant facilities in 13 countries and sold
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its products in 170 countries under 21 brand names. Of Whirlpool’s 1998 revenue of $10.3 billion,
46% was booked outside of North America.
Managers could point to successes and frustrations associated with globalization. On one hand,
efforts to leverage expertise across locations and to develop common technologies were beginning to
take hold.39 For instance, Whirlpool touted a Brazilian-built microwave oven that used Swedish
design and a Chinese product platform.40 On the other hand, efforts to increase market share in
Europe had met with stiff resistance, an unprofitable joint venture with a Chinese firm had been
shuttered, and the company had incurred heavy losses in Asia and Latin America.41
Manufacturing. Integration of Whirlpool’s global operations had proven to be a stiff challenge.
Differences across plants in manufacturing practices and in performance were vast, with very little
shared among facilities. This was true not only across continental divides, but also within each
continent. “When we bought Philips,” Whitwam recalled, “the washing machines made in the Italian
and German facilities didn’t have one screw in common.”42 The company’s senior team spent much
of the early 1990s creating a global operating platform: rationalizing the allocation of products to
plants, disseminating best practices, and establishing a Worldwide Excellence System (WES). WES
melded the ISO quality standards common in Europe and America’s Baldrige quality program,
aiming to measure quality, improve it, and link it to individual incentives.
By 1998, Whirlpool’s senior managers felt that the company was able to produce appliances at cost
and quality levels that were competitive with the best operators in the world. The company regularly
bought competitors’ products, tore them down, and estimated relative costs of materials and
manufacturing. Exhibit 6 shows cost comparisons for a high-volume washer and three models of
dishwashers in 1997. Exhibit 7 shows the evolution of Whirlpool’s quality ratings relative to the
competition.
Product line complexity added challenges to the jobs of J.C. Anderson, Whirlpool’s vice president
of group manufacturing and product delivery, and his plant managers. Overall, Whirlpool offered
dozens of different models of washers, dryers, refrigerators, freezers, ranges, and dishwashers in
North America in 1998. Some of the features that distinguished models could be added easily at the
end of a common assembly line. Other features were added in mid-assembly; when models with
such features shared a line, the speed of the entire line could be gated by the most complex product
on the line. Consequently, such models were often pulled aside and produced on separate, slower
assembly lines or even in a separate plant designed for flexibility.43
Organization, brands, and product lines. When Whitwam took the helm of Whirlpool in 1987,
profit-and-loss (P&L) responsibility rested at the level of product categories (such as refrigeration),
each of which made products for multiple brands (e.g., KitchenAid refrigerators, Whirlpool-branded
refrigerators). One of Whitwam’s early efforts was to move P&L responsibility from product
categories like refrigeration to individual brands such as KitchenAid. The shift was accomplished,
Whitwam recalled, “despite stiff resistance.”44
Whirlpool’s stable of brands differed by region. In North America, four brands dominated the
company’s sales.
•
The flagship Whirlpool brand offered lines of washers, dryers, refrigerators, freezers, ranges,
and dishwashers in the middle to high end of the price spectrum. The brand tended to be
especially strong in the laundry room.
•
KitchenAid offered a similar range of products at higher average price points, with an
emphasis on kitchen appliances. KitchenAid also featured a set of countertop kitchen
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appliances such as mixers, blenders, and food processors. (The countertop product line was
considered especially strong within Whirlpool. Harry Burritt, head of corporate planning,
remarked, “In planning sessions, we go through all the portfolio of Whirlpool. At some point,
the KitchenAid [countertop] folks talk about their business. And everyone starts laughing.
It’s so much fun to talk about: attractive operating margins and a dominant consumer
franchise in the stand mixer. They raise prices and sell more. How can that be possible?”45)
•
The Roper brand sold a similar spectrum of products, with fewer features and more basic
styling, at lower price points. Whirlpool had acquired the Roper brand in 1989 after a battle
with GE to take over Roper left GE with Roper’s manufacturing assets and Whirlpool with its
brand.
•
The Kenmore brand was owned by Sears, but it featured many products manufactured by
Whirlpool. As of 1998, Whirlpool had been Sears’ principal supplier of laundry appliances for
more than 80 years.
The company sold its products through diverse channels. Products carrying the Whirlpool and
KitchenAid brands, for instance, were sold through independent appliance chains, home
improvement stores, warehouse clubs, and mass merchants (including, since 1989, Sears). The
company did not, however, sell Whirlpool- and KitchenAid-branded goods through discounters like
Wal-Mart. Over time, the company had tended to ally more strongly with one retailer than others in
each type of channel: Sears more than Montgomery Ward, Lowe’s rather than Home Depot, and
Costco rather than Sam’s Club. Whirlpool managers felt that they worked more closely with channel
partners than did other appliance makers. Greg McManus, Whirlpool’s vice president of sales and
distribution for North America, described the company’s approach toward the channel:
Whirlpool has a longstanding history of channel leadership. This stems from a sales
orientation of focusing on what makes the retailer successful and playing an active role in
delivering on it. Whirlpool was born and raised depending on the channel for survival, and
that positions us to always think first about what drives retail success.46
Sears, which accounted for 17% of Whirlpool’s global sales and roughly 35% of U.S. sales in 1998,
received special attention from the company.47 This led to occasional complaints from managers of
other accounts and of non-Kenmore brands that “Sears always gets the best stuff first.”48 McManus
emphasized, however, that Whirlpool’s devotion to the Sears account was unlikely to change:
Whirlpool must keep Kenmore in confidence and high regard. There are tremendous legal
and ethical standards that must be upheld. For the Whirlpool brand, we strive to differentiate
ourselves from what Kenmore means in the marketplace. Even with the same features on both
brands, the two can be marketed differently. Whirlpool obviously tries to avoid stepping on
Kenmore products that we build. This is not about price but rather how the product and brand
are represented to the customers.49
Support functions. Whirlpool maintained a central technical organization and a central
marketing team at corporate headquarters. While conventional in size compared to other appliance
makers, these organizations were small relative to, say, the equivalent teams at auto makers or
consumer product companies. Research and development expenditures were 2.0% of sales in 1998,
while advertising expenses were 1.7% of sales. Whirlpool managers felt that the message and image
associated with each of its brands had varied over time. “We’ve done all the pieces of brand
management,” commented Ted Dosch, Whirlpool vice president and controller for the North
American region, “but not in an integrated or sustained way.”
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Change at Whirlpool Corporation (A)
Human resource systems at Whirlpool were marked by low employee turnover and promotion
from within the company. Many senior managers had spent most of their careers at the company
and had advanced through the ranks by “making their numbers,” especially numbers related to
revenue, quality, and cost. Headquartered in Benton Harbor, Michigan – two hours’ drive from
Chicago and an hour from Kalamazoo – the company maintained a distinctively Midwestern feel,
despite its global reach. Executives often got to work before 6 AM, started their meetings soon
thereafter, and left the office in time to attend their children’s Little League games. “This is a small
big corporation,” one vice president commented. “My kid plays soccer with the chairman’s
grandchildren.”
Structured work on the company’s culture and values had begun in 1990, when the senior
leadership team “took a list of generic values and, using a mathematical formula and a
spreadsheet,… vote[d] on the values that best described our culture.”50 The unsatisfying result was
revisited in 1995, when Nancy Snyder, corporate director for organization and leadership change
process, led a concerted effort to identify, refine, and articulate the real culture and values of
Whirlpool. A series of workshops started with the nine-person Executive Committee, cascaded
through the top 400 managers, and yielded a booklet that laid out four core values (respect, integrity,
teamwork, and customer insight). Each senior and midlevel manager in the company then held
meetings with frontline employees to discuss and challenge the values. This process generated
descriptions of the Whirlpool culture, some of which are laid out in Exhibit 8.
The path to Brand-Focused Value Creation. Whitwam’s focus on Whirlpool’s brands and its end
customers began in the early days of his tenure as CEO, when he gave brand leaders P&L
responsibility. In 1989, Whitwam hired Harry Burritt to lead corporate planning. One of Burritt’s
first requests was a copy of all focus group reports and consumer videos. He found that, while the
company conducted consumer research for the Whirlpool brand, the research was not used
extensively to drive processes like product development.
In 1993, Whitwam and the Executive Commitee launched an initiative dubbed the Dominant
Consumer Franchise (DCF). The intent, Whitwam put it, was to “give the final consumer a
compelling reason beyond price to desire our brands.” Efforts to understand the consumer followed:
case studies, market research surveys, and ethnographic studies of a typical consumer nicknamed
“Jane.” Soon after, the company launched a set of products laden with features. A new refrigerator
model, for instance, sported an ice maker, ice and water dispensers, crisper compartments, adjustable
door bins, wine racks, temperature-controlled meat lockers, and so forth. Andrew Batson, a
marketing director for Whirlpool’s North American region, described the effort: “In many instances,
we took established features and attached them to pre-existing products. Costs and service incident
rates rose.”51 (Service incident rates measured the number of reported quality problems.)
Subsequently, Whirlpool retrenched around its manufacturing operations. Efforts took root to
simplify products, achieve operational excellence in the factories, and improve total cost productivity.
Management felt that costs and quality returned to competitive levels quickly. The DCF experience,
Batson remarked, caused many managers to pledge that “never again will we take our eye off the ball
of operational excellence.”52
Whitwam remained convinced, however, that operational excellence was not sufficient for
Whirlpool to thrive. In the fall of 1997, he convened the Executive Committee to chart Whirlpool’s
course into the next century.53 From the meeting emerged a new corporate vision: “Every
Home…Everywhere…with Pride, Passion, and Performance.” The vision was shared with other
senior leaders in January 1998 and communicated throughout the company in early 1998.
Meanwhile, task forces on employee pride, customer passion, and shareholder performance were
given six months to flesh out the practical implications of the vision.
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The customer passion team, with representatives from all regions and functions, reviewed
Whirlpool’s past efforts to focus on consumers, and it analyzed strong appliance brands like Maytag
and KitchenAid small appliances. It also examined companies outside the appliance industry that
had “passionate” relationships with customers, including Procter & Gamble, RJR, Harlequin, BMW,
and Ikea. In each of these companies – the team concluded – employees at all levels had a deeper
understanding of end-customers than was typical at Whirlpool. After surveying more than 500
people within Whirlpool, the team reported “surprising consensus around the need to become more
customer focused” but skepticism that such a change could take hold.
The employee pride team explored what makes people proud of their work. Priorities, the team
concluded, were to develop the capacity of employees to lead and to change, to create meaningful
work for all employees, and to reinforce Whirlpool’s existing efforts to be an outstanding corporate
citizen in its communities.
The shareholder performance team examined the distribution of total shareholder returns among
companies in the S&P 500 and asked, “What will it take for Whirlpool to provide returns at the upper
end of the second quartile of companies?” Simple calculations suggested that the company would
have to boost its $55 stock price to $100 by 2001. Further analysis showed that planned cost
improvements – aiming for a 2% improvement in net margins, a reduction in SG&A expense by 3% of
sales, and a 30% reduction in working capital – would not sustain a $100 share price by themselves.
Strong revenue growth and a price premium would also be required.
By July 1998, Whitwam and the Executive Committee had synthesized the team’s findings into a
strategy it dubbed “Brand-Focused Value Creation.” If Whirlpool could produce innovative,
branded solutions that its customers valued deeply, the company would generate loyalty among
customers and would command a price premium when customers purchased new appliances.
Customer devotion to the company’s brands would enable Whirlpool to escape what Whitwam had
come to call “the industry stalemate.” Employee pride would fuel the creation of branded solutions
and feed on the resulting success, which would also boost shareholder returns.
The call for innovative, branded solutions met with quiet but resolute skepticism in Whirlpool’s
hallways. “Over the years,” corporate director Nancy Snyder remarked, “people have used many
nice adjectives to describe Whirlpool. But ‘innovative’ has rarely been among them.”54 J.C.
Anderson, vice president of group manufacturing and product delivery, reminded employees that
“it’s cost reduction that has made Whirlpool great” and pointed out new cost-cutting efforts by GE
and Electrolux.55 Managers discreetly asked one another, “How is this different from DCF?” “I can’t
even remember how many times DCF was mentioned,” said Mike Todman, vice president for Sears
sales and marketing. “We knew we could count on Manufacturing to deliver results. Would the
brands work? Or would we wind up with one foot on each side of the fence?”56 In surveys,
employees questioned the ability of Whirlpool to “stay the course” in any effort to focus on endcustomers. Whitwam knew that Brand-Focused Value Creation could not succeed unless he won
over the loyal skeptics. The idea of innovation might help him in his campaign, he felt, but this
notion remained only partly formed in his mind.
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Exhibit 1
Change at Whirlpool Corporation (A)
Purchases of Core Appliances in the United States
1961
Thousands of appliances sold
Refrigerators
3,500
Ranges
3,400
Dishwashers
620
Washers
3,400
Dryers
1,200
1970
1983
5,200
4,500
2,100
4,100
3,000
6,429
4,240
2,931
4,546
3,293
99.9
99.8
45.0
73.6
64.0
Portion of households with appliance (%)
Refrigerators
98.0
99.8
Ranges
99.0
99.8
Dishwashers
7.1
23.7
Washers
Dryers
19.6
40.3
1990
1995
1998
7,101
5,156
3,637
6,192
4,420
8,793
6,199
4,553
6,901
5,224
8,916
7,588
5,144
7,024
5,790
99.8
99.8
50.0
73.9
68.6
99.8
99.8
54.4
76.4
74.9
99.8
99.8
56.9
79.8
74.1
Source: Compiled from M. Hunt (1972), Competition in the Home Appliance Industry, 1961-1970, Appliance, Statistical
nd
Review, April 1984, Appliance, A Portrait of the Appliance Industry, September 1991, and Appliance, 22 Annual
Report of the U.S. Appliance Industry, September 1999.
Exhibit 2
Typical Retail Display of Major Home Appliances
Source: Whirlpool company document.
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Exhibit 3
705-462
Cost Structure of a U.S. Major Home Appliance
Percent of
Manufacturer Price
40
15
7
3
65
Cost Item
Raw Materials
Labor
Depreciation, maintenance
Other manufacturing costs
Cost of goods
Transporting, warehousing
Marketing
Service
R&D
General & administrative
Total operating expenses
4
9
2
3
6
24
Operating margin
Manufacturer price
Retail price
Source:
P. Ghemawat and R. Shukla, “The Major Home Appliance
Industry: A Global Perspective,” Harvard Business School Case
700-048. Original Source: GEA Consulting.
Exhibit 4a
Manufacturer Market Shares of Core Appliances in the United States in 1998 (%)
Electrolux
20
14
7
7
7
Refrigerators
Ranges
Dishwashers
Washers
Dryers
Source:
Note:
11
100
143
GE
32
37
38
15
18
Maytag
11
21
16
21
17
Whirlpool
25
16
39
53
54
Others
12
12
-4
4
Appliance, 22nd Annual Report of the U.S. Appliance Industry, September 1999.
Market shares are by manufacturer, not by brand. Whirlpool figures, for instance, include
units of all brands manufactured by Whirlpool, not just Whirlpool-branded units.
Exhibit 4b
Brand Market Shares of Core Appliances in the United States, 1994-98 (%)
Whirlpool
KitchenAid
Roper and others
All Whirlpool brands
1994
14.5
2.9
4.2
21.6
1995
15.0
2.8
4.5
22.4
1996
15.1
2.3
4.1
21.5
1997
15.9
2.3
3.9
22.0
1998
15.5
2.1
3.4
21.1
Kenmore
All General Electric brands
All Maytag brands
All Electrolux brands
Others
19.8
25.9
14.3
9.2
9.2
21.0
24.9
14.0
9.0
8.8
22.1
26.3
13.3
8.2
8.6
21.5
25.2
13.8
8.9
8.5
22.4
24.0
15.1
9.7
7.8
Source:
Adapted from Whirlpool company documents.
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Change at Whirlpool Corporation (A)
Exhibit 5 Selected Financial Data for Major Appliance Competitors (in millions of U.S. dollars
unless noted otherwise)
1994
1995
1996
1997
1998
7,949
5,952
1,353
24
250
370
4.7%
620
7.8%
8,163
6,245
1,521
31
0
366
4.5%
366
4.5%
8,523
6,623
1,557
35
30
278
3.3%
308
3.6%
8,617
6,604
1,625
34
343
11
0.1%
354
4.1%
10,323
7,805
1,791
39
0
688
6.7%
688
6.7%
North American operating margin (%)
European operating margin (%)
10.3%
6.7%
6.2%
3.6%
7.0%
-0.7%
6.4%
-6.0%
11.3%
5.0%
General Electric Appliances
Sales
Operating profit
Operating margin (%)
Operating margin of all of GE (%)
5,965
683
11.5%
19.5%
5,137
697
13.6%
19.1%
5,581
750
13.4%
19.0%
5,801
771
13.3%
13.4%
5,619
755
13.4%
13.5%
8,920
344
3.9%
11,345
385
3.4%
10,775
360
3.3%
10,254
371
3.6%
10,442
501
4.8%
3,373
2,496
356
3,040
2,251
371
3,002
2,180
292
3,408
2,472
383
4,070
2,888
560
117
7
232
6.9%
83
176
112
3.7%
66
40
186
6.2%
84
0
299
8.8%
101
0
459
11.3%
Whirlpool
Net sales
Cost of goods sold
Selling, general, and administrative
Intangible amortization
Restructuring costs
Operating profit
Operating margin (%)
Operating profit ex. restructuring costs
Operating margin ex. restructuring costs (%)
Electrolux
Appliance sales
Appliance operating profit
Appliance operating margin (%)
Maytag
Sales
Cost of goods sold
Operating income before corporate
interest expense & special charges
Corporate and interest expense
Special charges
Operating profit
Operating margin (%)
Sources: Electrolux 1998 20-F, General Electric 1998 10-K, Maytag 1998 10-K, and Whirlpool 1998 10-K.
Note:
Figures are shown as reported in indicated years and do not reflect subsequent restatements. N.B. Industry
observers felt that it was difficult to compare aggregate financials across appliance companies. Companies
accounted for expenses differently, and they differed in their geographic and product mixes, which affected overall
profit margins significantly. Diversified companies such as General Electric had wide discretion as they allocated
costs to individual businesses.
14
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705-462
Exhibit 6 Estimate of Competitor
Material and Manufacturing Costs in 1997
(Whirlpool North America cost = 100)
Cost
Washer
Competitor A
Competitor B
Competitor C
Competitor D
141
119
131
149
Dishwasher Model 1
Competitor A
107
Dishwasher Model 2
Competitor A
115
Dishwasher Model 3
Competitor A
117
Source:
Adapted from Whirlpool company documents.
Exhibit 7
Whirlpool’s Best Quality Ranking in Consumer Reports
1992
Refrigerators
Sixth
Gas Ranges
Dishwashers
1994
1996
1998
Second
First
Second
Sixth
Sixth
Fifth
Second
Second
Third
Washers
First
First
First
First
Dryers
Second
Second
First
Second
Source:
Consumer Reports, various issues, 1992-1999.
Exhibit 8
Cultural Descriptions of Whirlpool in Mid- to Late 1990s
Midwest or “small town” like
Everyone can say no…risk averse
Friendly
Lack of alignment and consistency
Ethical
Too many programs and projects
Deterministic
Not-invented-here syndrome
Integrity
Change averse
Respect
Not customer centered
Team decision making
Silo mentality
Cost containment and quality centered
Internal or trade only focused
Source:
Nancy Tennant Snyder and Deborah L. Duarte, Strategic Innovation (San Francisco: Jossey-Bass, 2003), p. 87.
15
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Change at Whirlpool Corporation (A)
Endnotes
1
Interview with Dave Whitwam, former Whirlpool Chairman and CEO, September 9, 2004.
Interview with Dave Whitwam, former Whirlpool Chairman and CEO, September 9, 2004.
3
Appliance Manufacturer, Special Report: 1999 Market Profile, April 1999.
4
Encyclopedia of American Industries, 3rd ed. Rebecca Marlow Ferguson, ed. Framingham, MI: Gale Group, 2001.
5
Encyclopedia of American Industries, 3rd ed. Rebecca Marlow Ferguson, ed. Framingham, MI: Gale Group, 2001.
6
T. Somheil, “60 Years of Appliance Technology,” Appliance, June 2004.
7
M. Hunt, Competition in the Home Appliance Industry, 1960-1970. Unpublished dissertation, Harvard Business
School, 1972.
8
Appliance Manufacturer, Regulations at a Glance, September 1999.
9
Appliance Manufacturer, Special Report: 1999 Market Profile, April 1999. Interview, Greg McManus, Whirlpool
vice president and general manager of sales and customer care – North American region (formerly vice
president of sales and distribution – North American region), December 15, 2004.
10
Encyclopedia of American Industries, 3rd ed. Rebecca Marlow Ferguson, ed. Framingham, MI: Gale Group, 2001
11
M. Hunt, Competition in the Home Appliance Industry, 1960-1970. Unpublished dissertation, Harvard Business
School, 1972.
12
M. Hunt, Competition in the Home Appliance Industry, 1960-1970. Unpublished dissertation, Harvard Business
School, 1972.
13
M. Hunt, Competition in the Home Appliance Industry, 1960-1970. Unpublished dissertation, Harvard Business
School, 1972.
14
T. Somhell, “Bringing Good Things to Market,” Appliance, June 1997.
15
Whirlpool, 1998 10-K.
16
Nancy Tennant Snyder and Deborah L. Duarte, Strategic Innovation (San Francisco: Jossey-Bass, 2003), p. 4.
17
J. Latshaw, “What’s In: Conserving, What’s Out: Noise,” Dealerscope Consumer Electronics Marketplace, June
1998.
18
J. Latshaw, “A/C, Neptune Set Margin Balance,” Dealerscope Consumer Electronics Marketplace, July 1998.
19
M. Hunt, Competition in the Home Appliance Industry, 1960-1970. Unpublished dissertation, Harvard Business
School, 1972.
20
Interview, Greg McManus, Whirlpool vice president and general manager of sales and customer care – North
American region (formerly vice president of sales and distribution – North American region), December 15,
2004.
21
D. Morse and S. Gray, “Battle of the Boxes: Kmart, Sears Deal Fuels Appliance Wars,” Wall Street Journal,
November 26, 2004.
22
Personal communication with Ted Dosch, Whirlpool corporate vice president and controller, April 1, 2005.
23
Interview with Joe Foster, director of Whirlpool brand fabric care, December 8, 2004.
24
J. Sprague, “Whirlpool Corporation: Company Report,” PaineWebber Inc., October 2, 1992.
25
Interview with Dean Triemstra, Whirlpool general manager, refrigeration strategy, December 9, 2004.
26
D. Davis, “A Laundry List of Changes,” Appliance, June 1997.
27
M. Murray, “Will the New Repairman Be Able to Fix GE’s Appliances Division?” The Wall Street Journal,
November 15, 1999.
28
Interview with Dean Trimestra, Whirlpool general manager, refrigeration strategy, December 9, 2004.
29
Interview with Dean Triemstra, Whirlpool general manager, refrigeration strategy, December 9, 2004.
30
T. Somhell, “Bringing Good Things to Market,” Appliance, June 1997.
31
T. Somhell, “Bringing Good Things to Market,” Appliance, June 1997
32
Anonymous, “A Fascinating Story and Some Valuable Lessons in Business Leadership: Lou Upton – A Legend
in the Washing Machine Business. File 920, Archival Materials, Whirlpool Corporation.” Quoted in M.
Russell, “Cleaner Clothes for Less Work: The Upton Machine Company 1911-1929,” Essays in Economic and
Business History, Volume 12, 383-397, 1994.
2
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Change at Whirlpool Corporation (A)
705-462
33
M. Russell, “Cleaner Clothes for Less Work: The Upton Machine Company 1911-1929,” Essays in Economic and
Business History, Volume 12, 383-397, 1994.
34
International Directory of Company Histories, Volume 59, Farmington Hills, MI, St. James Press.
35
M. Hunt, Competition in the Home Appliance Industry, 1960-1970. Unpublished dissertation, Harvard Business
School, 1972.
36
“Share of Market Picture,” Appliance, September 1981.
37
Who’s Who in America, New Providence, NJ: Marquis’ Who’s Who.
38
Regina Fazio Maruca, “The Right Way to Go Global: An Interview with Whirlpool CEO David Whitwam,”
Harvard Business Review, March-April 1994, pp. 137-138.
39
Regina Fazio Maruca, “The Right Way to Go Global: An Interview with Whirlpool CEO David Whitwam,”
Harvard Business Review, March-April 1994.
40
Whirlpool, 1998 Annual Report.
41
International Directory of Company Histories, Volume 59, Farmington Hills, MI, St. James Press.
42
Regina Fazio Maruca, “The Right Way to Go Global: An Interview with Whirlpool CEO David Whitwam,”
Harvard Business Review, March-April 1994, pp. 136.
43
Personal communication with Greg McManus, Whirlpool vice president and general manager of sales and
customer care – North American region (formerly vice president of sales and distribution – North American
region), December 28, 2004.
44
Interview with Dave Whitwam, former Whirlpool Chairman and CEO, September 9, 2004.
45
Interview with Harry Burritt, Whirlpool vice president of corporate planning and development, September 8,
2004.
46
Personal communication with Greg McManus, Whirlpool vice president and general manager of sales and
customer care – North American region (formerly vice president of sales and distribution – North American
region), December 28, 2004.
47
Whirlpool, 1998 10-K.
48
Interview with Andrew Batson, Whirlpool vice president and general manager, brand portfolio operations and
new businesses, North American region, and Hank Marcy, Whirlpool vice president of corporate innovation
and technology, December 8, 2004.
49
Personal communication with Greg McManus, Whirlpool vice president and general manager of sales and
customer care – North American region (formerly vice president of sales and distribution – North American
region), December 28, 2004.
50
Nancy Tennant Snyder and Deborah L. Duarte, Strategic Innovation (San Francisco: Jossey-Bass, 2003), p. 83.
51
Interview with Andrew Batson, Whirlpool vice president and general manager, brand portfolio operations and
new businesses, North American region, (formerly marketing director for Whirlpool’s North American
region), December 8, 2004.
52
Interview with Andrew Batson, Whirlpool vice president and general manager, brand portfolio operations and
new businesses, North American region, (formerly marketing director for Whirlpool’s North American
region), December 8, 2004.
53
The following account is drawn from a Whirlpool company document, “Brand-focused Value Creation: A
Global Architecture,” July 1998.
54
Interview with Nancy Snyder, Whirlpool corporate vice president of strategic competency creation (formerly
corporate director for organization and leadership change process), September 8, 2004.
55
Interview with Joe Foster, director of Whirlpool brand fabric care, December 8, 2004.
56
Interview with Mike Todman, executive vice president and president of Whirlpool Europe (formerly vice
president for Sears sales and marketing), December 9, 2004.
17
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